HEATH: Preventing Obamacare from undermining innovation

By Hadley Heath - -
Thursday, October 24, 2013

The national conversation over health care reform has once again reached a fever pitch, resulting in a government shutdown for 16 days earlier this month. Even after the shutdown and a rocky start to the law’s online-enrollment feature, Americans remain divided. Some want to move ahead with Obamacare, emphasizing the shortcomings of the current health care system in the United States.

Indeed, many facets of the American health system were (and still are) dysfunctional. Reform is necessary. In the ongoing critique of our health system, though, we should keep in mind one area where American health care has led; namely, innovation. This innovation is a result of our nation’s laws protecting intellectual property and our health system that reward new, valuable ideas.

A 2009 study showed that American scientists won the Nobel Prize in 33 of the previous 40 years, whereas scientists from the entire rest of the world won it in only 25 out of those 40 years (the prize is often shared). Additionally, of the world’s top 27 drugs and devices, U.S. physicians, companies and scientists had a hand in developing 20 of them, whereas Europeans only had a hand in 14.

Is this because of Americans’ exceptional natural intelligence? Is it a result of our world-class public education system? Clearly, it is not.

Rather, America’s free-enterprise system attracts the brightest minds from all over the world. These minds know that their contributions will be rewarded in markets — or discarded in socialist or government-run economies.

A key element is that American patent laws protect the intellectual property of health care innovators. Patents on pharmaceuticals allow companies to recoup their investments in research, development and trials to reach final products. Patents on medical devices do the same. This is critical, because the main cost of creating these new treatments isn’t in their production, but in their development. Without these protections, the incentive to innovate would be drastically reduced.

Policymakers overlook this key factor in our medical system at our peril. Our innovations in health care save and enrich lives throughout the whole world, especially when other nations respect our intellectual property as well.

Sometimes, other nations steal American ideas. For American policymakers, stopping this theft — which sometimes results in the peddling of ineffective or even harmful counterfeit drugs — should be a priority. We should encourage countries throughout the world to adopt laws that protect the rights of innovators and the safety of consumers from counterfeit medicines. This way, American innovations can spread to the rest of the world without being misrepresented or misused.

Understanding the economics of health care innovation is also important as policymakers consider prices in medical care. Particularly if the federal government moves forward with micromanaging more and more of the medical system, it will be tempting for it to try to squeeze money out of the system through price controls. Yet the prices we pay for drugs and treatments must reflect the full costs and continued investment that health care companies make during development.

Policymakers have already given in to the temptation of trying to take more from the supposedly deep pockets of health care companies by singling them out for additional taxes. The medical-device tax included in Obamacare, for example, targets not just profits, but sales of medical devices with a 2.3 percent excise tax. This is counterproductive for our economy and nation’s health, since many medical-device manufacturers will pass along the cost of this excise tax to consumers.

Manipulating prices through regulations and excise taxes is a dangerous game. Instead of interfering, government should take a step back and allow competition to reward insurers, providers and innovators who provide the highest value.

America’s health care system needs reform. Yet when doing so, we should take care to preserve what’s best about our health care system, such as our leadership in medical innovation, and consider how to create incentives for greater innovation and efficiency.

Obamacare takes us in the wrong direction, toward even more government meddling and greater inefficiency. That’s why we need to restart the reform process and consider how we can truly create a system that helps those in need to access care, but also encourages dynamism and innovation. It’s not just our health, but the health and well-being of the whole world that hangs in the balance.

Hadley Heath is a senior policy analyst at the Independent Women’s Forum (iwf.org).